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Interest-Rate Puzzle Confronts Federal Reserve Officials

Policy Makers Wrestle Over How Fast Economy Can Grow in the Long Term

When Federal Reserve officials gather for their policy meeting Tuesday and Wednesday, the most challenging question will be where rates belong years into the future. WSJ's chief economics correspondent Jon Hilsenrath joins Michael Casey on the News Hub with more on this. Photo: Getty

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Jon Hilsenrath

Updated June 15, 2014 4:28 p.m. ET

When Federal Reserve officials gather for their policy meeting Tuesday and Wednesday, the most challenging question won't be where to push interest rates in the next few days, weeks or even months. It will be where rates belong years into the future.

Fed policy makers have traditionally believed their benchmark short-term interest rate, called the federal-funds rate, should be around 4% in a perfectly balanced economy, meaning one in...